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“Once data is digital it becomes easier to transfer, access,
and make it mobile giving auditors the ability to assess risk differently--seeing
trends and things going on in the clients business that would normally have
taken a more detailed understanding to uncover. Most importantly once you
create a digital record of something, it opens it up to advanced analytics”
said Will
Bible, Audit Partner with Deloitte focusing on audit transformation and innovation during a phone conversation with Bloomberg Tax.

“The overall objective of an audit is to provide reasonable
assurance that the financial statements are free from material misstatements.
Technology allows auditors in some cases to look at the full population versus
testing samples, which provides more certainty to the audit opinion,” Bible said. Ultimately, “you have a better understanding of the business you are auditing, which allows
for better conversations with the clients, and reduces the unnecessary friction
of exchanging documents and information. Auditors are able to step back and
visualize information in a different way, allowing for less potential of
operational error.”

How is that accomplished when corporations have more
paperwork and documentation than most professional service firms could read,
analyze, or audit in a lifetime? The new revenue
rules (ASC 606) for example, requires companies to re-examine virtually
every contract with customers, or the new leasing
rules (ASC 842) requires the re-examination and classification of every
leased asset across an organization. Many of these documents may have been
signed before digital documentation existed, or they exist simply as a PDF file
on a company server. The most prudent auditor, regulator, and investor ought to
be wondering what companies are doing to comply, and what test procedures
auditors will use.

The answer lies partially in going digital. “Many companies have undergone the process to digitize
themselves, to derive and capture value from improved business practices. For
example they see the benefits of having new front end systems that can instantly
digitize and record information that can easily be managed and integrated with
their existing ERP systems. They are not necessarily doing this for the benefit
of the auditors” said Bible.

Complying with the lease accounting standards requires
collecting a lot of documents. For example,
a case study on Cummins inc. showed that they had over 7,400 leases after
analyzing all leased assets, nearly 5,000 more than expected. "Depending
on the maturity of the organization and how the organization is maintaining
those documents overtime, there may have been an effort up front to digitize,
or collect in one place all the different leases across the organization. To
accomplish this, some companies used extraction technology, while others are throwing
more people at it. However, with leasing, there is a vibrant market for hiring
consultants and vendors" noted Bible. “Some companies are developing some in
house solutions, but the necessity for ongoing tracking and maintenance
requires specific built systems to meet those requirements.”

Future Technology for
Auditors and Accountants to Consider

“Many companies are undergoing experiments to understand how
distributed ledgers, or blockchain could enable better business practices and that
could have interesting ramifications with impacts to the audit process to the
extent that it affects financial reporting,” said Bible. Additionally, artificial
intelligence (AI) is being used by Microsoft,
IBM, Dow and more to “rake in efficiency gains” according to Bloomberg Tax. Expect for AI to play an ever increasing roll in the accounting and audit profession.

From the audit side, firms are experimenting with things like
remote imaging technology and using drones to conduct certain kinds of inventory
calculations. For example, an auditor of a large scale farm can instantly count
the number of cattle from an aerial view without herding the group together for
a head count. The introduction of mobile device technology in the audit process
gives the auditor the ability to quickly scan barcodes and instantly input the
necessary data into a depository. These are just a couple of examples of how
innovation and technology is being used to increase the efficiency and
effectiveness of companies and their auditors alike.

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